I think he just picked "Millhouse" because it seems very "white" and bland, even a little upper-crusty.
A lot of radio talkers (and maybe others) have been hassled for frequent use of Obama's full, actual name, "Barack Hussein Obama." Just using the man's middle name has been branded as anti-Muslim fear-mongering, racism, or an attempt to make him sound like a Middle Eastern dictator. Naturally, conservatives have seized upon such comments for further mockery.
I haven't heard Levine actually explain this, but I think he is just making light of the whole issue by giving Obama a middle name that is associated with a white, Quaker, conservative president. As if to say, "What, you don't like 'Hussein'? Fine, we'll call him 'Millhouse.'"